Nine states collect no income tax on wages or salaries

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages or salaries. New Hampshire also taxes interest and dividend income but not wages. The other eight states tax neither wages nor investment income.

This does not mean these states have no taxes at all. Most fund government through sales tax, property tax, excise tax on fuel or alcohol, or some combination. The absence of income tax shifts the tax burden to consumption and property ownership rather than earnings.

If you live in one of these states, you will not owe state income tax on your paycheck, but you may still owe federal income tax. Federal tax is separate and applies everywhere in the United States.

Key Takeaways

  • Nine states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire—do not tax wages or salaries.
  • New Hampshire taxes investment income but not wages, while the other eight states tax neither wages nor investment income.
  • States without income tax typically rely on sales tax, property tax, and excise taxes instead, so your total tax burden depends on what you buy and own, not just what you earn.
  • Living in a no-income-tax state does not reduce your federal income tax, which you owe regardless of where you live.
  • If you move to or from a no-income-tax state, you may owe taxes to your previous state for the portion of the year you lived there.

How no-income-tax states replace that revenue

Alaska funds government primarily through oil revenue and a modest sales tax. The state also taxes businesses and has no statewide sales tax, though some municipalities charge local sales tax.

Florida, Nevada, Texas, and Washington rely heavily on sales tax, which ranges from 6 percent to 10 percent depending on the state and county. Tennessee and South Dakota also use sales tax but at lower rates. Wyoming has the lowest sales tax at 4 percent statewide, though counties can add local tax.

Property tax varies widely in these states. Texas and New Hampshire have relatively high property taxes to offset the lack of income tax. Alaska and Florida have lower property taxes. If you own a home, the property tax rate in your specific county matters more than the state average.

What happens to your federal taxes in a no-income-tax state

Federal income tax is separate from state income tax. You owe federal tax based on your income and filing status, regardless of which state you live in. The IRS collects federal tax from all fifty states and the District of Columbia.

Your federal tax bracket, deductions, and credits do not change because you live in a state without income tax. If you earned $60,000 and are single, your federal tax obligation is the same whether you live in Texas or California.

Some people move to no-income-tax states hoping to reduce their overall tax burden. In practice, the savings depend on how much you earn and spend. A high earner in a high-income-tax state may save money by moving to a no-income-tax state. Someone with modest income may pay more in sales tax and property tax than they would have paid in state income tax elsewhere.

State tax obligations when you move

If you move to a no-income-tax state during the year, you may still owe income tax to your previous state for the months you lived there. Most states tax you based on residency—you owe tax to the state where you lived on the last day of the tax year.

When you move, notify your previous state's tax authority and your new state's tax authority. Some states require you to file a part-year return showing income earned while you were a resident. The IRS allows you to claim a credit for taxes paid to another state, so you do not pay twice on the same income.

If you work remotely for a company in a high-income-tax state but live in a no-income-tax state, you typically owe tax only to the state where you live. Some states have tried to tax remote workers, but most have backed away from this practice. Check with your state's tax authority if your situation is unusual.

Retirement income and investment income in no-income-tax states

Most no-income-tax states also do not tax retirement income, including Social Security, pensions, and distributions from retirement accounts like 401(k)s and IRAs. This makes these states popular with retirees.

New Hampshire is the exception. It does not tax wages but does tax interest and dividend income at 5 percent. However, New Hampshire exempts Social Security and retirement account distributions, so retirees still benefit from the lack of income tax on pensions and 401(k) withdrawals.

If you receive investment income—dividends, capital gains, or interest—check the specific rules in your state. Most no-income-tax states do not tax these either, but a few have limited taxes on specific types of investment income.

Comparing total tax burden across states

The absence of income tax does not automatically make a state cheaper to live in. A state with no income tax but high sales tax and property tax may cost more overall than a state with moderate income tax and lower property tax.

Consider your personal situation. If you earn a high salary and own property, property tax matters more than income tax. If you spend most of your income on goods and services, sales tax matters more. If you earn modest income and rent rather than own, the lack of income tax may save you the most money.

Use a tax calculator or speak with a tax professional if you are considering a move. They can estimate your total tax burden in your current state versus a no-income-tax state based on your specific income, property ownership, and spending habits.

Frequently Asked Questions

Do I have to pay federal taxes if I live in a no-income-tax state?

Yes. Federal income tax applies in all states. The IRS collects federal tax based on your income and filing status, regardless of where you live. State income tax and federal income tax are separate.

Can I avoid all taxes by moving to Alaska or Texas?

No. You will still owe federal income tax, sales tax on purchases, and property tax if you own a home. The lack of state income tax reduces your total tax burden, but it does not eliminate taxes.

Does New Hampshire really have no income tax?

New Hampshire does not tax wages or salaries, but it does tax interest and dividend income at 5 percent. Social Security and retirement account distributions are exempt. For wage earners and retirees, the effect is similar to other no-income-tax states.

If I work in a high-tax state but live in a no-income-tax state, which state taxes my income?

Generally, the state where you live taxes your income. However, some states tax nonresidents who work within their borders. If you live in Nevada and work in California, California may tax your wages. Check both states' rules or consult a tax professional.

Are no-income-tax states cheaper to retire in?

Often, but not always. Most no-income-tax states exempt Social Security and pension income, which benefits retirees. However, property tax and sales tax vary. Compare the total tax burden in your current state and the state you are considering based on your specific retirement income and spending.